Retailers up IT spend; betting big on IT to tap new customers, geographies

BANGALORE: Beth M Jacob, executive vice-president and CIO at Target Corporation - the second biggest US discount retailer -- is at the cutting edge of business where companies are scrambling to sell through iPads, online social networks and mobile phones. Technology and outsourcing is at the core of Target's vision to become a $100 billion retailer over the next few years, from around $67 billion in annual revenues right now.

In many ways, Jacob's over billion-dollar IT budget reflects the changing ways of technology buying, which is shifting to newer online models and is driven by expansions in fresh geographic markets. Led by the world's biggest retailer Walmart, which is now outsourcing software projects to Infosys, Cognizant and Wipro, US retailers are asking vendors to offer insights into businesses, beyond labour arbitrage and back- office projects.

According to Jacob, 49, Target today also holds its third party vendors accountable for helping drive increased revenue. "We absolutely want them to help us on the innovation agenda, so I expect the third party to go beyond the base expectation of pounding out work. I would expect them to bring value add in form of competitive pricing, better quality and fewer defects, new ideas in business process that we can engage in. The expectations from our partners are fair and high," she said.

Even as consumer confidence in the US remains tepid amid stubborn unemployment and economic uncertainties, retail giants like Target are stepping up IT spends. The $67-billion, US-based retailer has increased its IT budget by over 12% in the past year as it puts its weight behind future bets and gets ready to roll out its e-commerce platform next month. "The past year we grew it by over 12%. That is just about continuing to invest in our core, growing the business along different product lines. So its about the whole core of the business including dot com," Jacob said "We are investing in building for Canada. So, our investment in technology is actually far greater than the number I gave you," she said. Target is making its first foray outside the US into Canada where it plans to open 100-150 stores by 2013.

The second-largest discount retailer in the US after Walmart, Target has its own information technology set-up in Bangalore, employing more than 2,000 techies and works with almost all the large Indian IT services providers including Tata Consultancy Services, Infosys and Wipro. Though the company does not reveal its total spends on IT, industry watchers say it is likely to be nearly a billion dollars, divided between multiple vendors.

Consumer shift towards shopping on smarter devices, global expansion and a push into online have been driving global IT spends in the retail industry and Target is no different. The company, which is aiming at revenues of over $100 billion in the next six-seven years, is set to launch what it calls the "largest e-commerce development in the world right now" next month. This coincides with the end of its contract with Amazon, which has been hosting its online platform so far. Target started work on its e-commerce platform two years back. Developed to look and feel like its brick and mortar stores, the portal also focuses on areas like personalisation, recommendations and social media.

"We built this to set us up for continued innovation. We bought together a dozen or more best of breed players in different spaces. Two personalisation, two search... we investigated who had the capabilities in different pieces and then we married all of them together. This allows us to stay fresh and innovate quickly," Jacob said. The development has been led by its team in Bangalore which will also operate it in the long term.

A study by Forrester Research says Internet retail spends will grow 10% every year till 2015, as customers gradually shift online. The total US e-commerce market is pegged at $176 billion and Target has some pretty interesting numbers: Target got $5 billion worth of revenues in just a few weeks around Christmas from online sales. In 2009, the firm had nearly one billion visitors on its online portal.

Other expanded offerings at Target include forays into food and pharmaceuticals retailing. The Minnesota-based company has launched its food chain "PFresh" and will also be launching smaller, urban stores in 2012, in a move away from its large format model. The large Indian IT services providers get over 10% of their revenues from the global retail industry, providing services ranging from application development and maintenance to business intelligence and analytics.